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The Down Payment – Your Upfront Contribution to Your Property
When you apply for a mortgage you will be expected to make some contribution toward the purchase of your Mississauga home. Your contribution is the down payment. The rest is supplied by a bank or private lender by way of a mortgage. A conventional mortgage requires a down payment of twenty percent. A down payment of anything less is termed a high ratio mortgage.
The lowest down payment allowed in Canada is five percent on the first half million dollars and ten percent on the next $500 000 up to one million dollars. If you purchase a house that costs more than a million dollars you will be expected to make a twenty percent down payment. Your down payment is an important factor in determining the size of the mortgage you that you will qualify for. It will also impact on the interest rate that you will pay to service the debt.
If you hope to qualify for a five percent mortgage, you should ensure that your credit rating is excellent.
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High Ratio Mortgages Cost More
All homeowners that put down less than twenty percent must purchase mortgage default insurance to cover the risk of the loan. This insurance can cost anything from 0.5% to 4.5% of the cost of the mortgage. The amount will vary according to the amortization period and the Loan to Value ratio. The less you put down the higher your insurance payment.
This makes the carrying costs of these mortgages much higher. Mortgage default insurance is a single payment insurance that will be paid when the mortgage is closed. Some lenders will add it to the mortgage so that in effect you pay it as part of the monthly payments. Bear in mind that you will be paying interest on the insurance.
When deciding how much you can afford to offer as the down payment on your home you must take account of closing costs and upfront costs which must be paid. Some Mississauga lenders will impose a minimum reserve fund for emergencies. Before looking for your home you should consult with your Mississauga mortgage broker so that you understand the costs that you will incur when purchasing a property.
A low-down payment will have the effect of raising the overall interest payment over the amortization period of the loan, so every effort should be made to raise the size of the down payment. If you are a first-time homeowner the federal government will allow you to use up to $25000 of your Registered Retirement Savings Plan to purchase your home. If you are married your spouse can do the same. You have fifteen years to repay the withdrawal, and you do not have to pay anything back for the first two years so it makes sense to use this money as part of your deposit.
Find a Mississauga Apartment of Less than $500,000
Whilst saving a twenty percent down payment can be difficult, the less you pay up front the more you’ll pay in interest. You may also run the risk of property values falling leaving you with insufficient equity to cover your mortgage when you sell.
If you cannot afford a down payment of more than five percent and you are unwilling to continue renting, get your credit rating in order and find an apartment of less than $500 000 and you could soon be living in your own home.
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